Glencore plc

Good morning. Thank you for joining us for our 2020 financial results. Today on the call we'll have Ivan Glazenberg, CEO, Stephen Kalman, CFO, and joining from Australia we'll have Gary Nagel, our CEO designates. Without any further ado, I'll hand it over to Ivan.

Okay, thanks Martin. Good morning. Turning to the slides, in the first slide, slide four, we talk about the investment proposition of Glencore. And as you are aware, with our commodities, we enable the transition to a low-carbon economy, and our business model has been responsive to take this into account. We are a leading producer, marketer, and recycler of these transition commodities, and we'll talk about those actual commodities later on. We sector leading in our climate strategy and as we announced in December, we're targeting a 40% reduction in our total CO2 emissions by 2035 and by 2050, net zero emission for scope one, two and three to emphasize including scope three emissions. We believe we're responsible stewardship of the declining coal business over time and as the industry decarbonizes, We'll be running these assets whilst we deplete them towards the end of their life in 2050, but we'll talk about that in more detail later. We believe we got the right business model. The transition to a low-carbon future is overall positive for Glencore in view of our commodity mix, and we've got the right commodities for this decarbonisation transition which is taking place. A high portfolio of these commodities They're good high-margin commodities, large-scale mining, and long-life assets, and we'll talk about the life of these assets, which Steve will give details later on, in respect of these low-carbon commodities. The business is extremely highly cash-generated today, and if you have a look at it, we do look at the EBITDA based on the spot prices, January prices, in fact, you'll see we talk about $16 billion of EBITDA with around about $7.2 billion of free cash. And if you had to use today's spot prices, that is more like $17 billion EBITDA and close to $8 billion of free cash. So the business model and the strategy and the asset mix creates a sustainable growing returns in this transition to the low-carbon energy. So if you look at the 2020 scorecard, if we have a look at the next slide, slide five, it's been a healthy cash generation of the business, even with the difficult environment with COVID-19 existing and affecting some of our assets during the first half of the year. We generated EBITDA of $11.6 billion. which is flat similar to 2019, and the marketing and industrial metals offset the weaker coal prices that existed during the year. Net income pre-significant items was $2.5 billion, which is plus 2% on 2019. and the equity-free cash flow was extremely strong in view of this environment, $4.3 billion free cash flow, and that's up 65% from the previous year. And on the back of that free cash flow, we will be paying out a dividend of 12 cents, which is around about $1.6 billion, and that's in view of our existing dividend policy, and Steve will talk about that later on. how that is calculated and how that will be paid out during this year, and the potential to increase it when we review it at the half-year results. The industrial assets, as I said, were resilient even under the difficult environment during the first half of the year, and the industrial assets generated $7.8 billion of EBITDA, which is slightly lower than the previous year, and this may be due to the strong metals performance of commodity prices during the year, outweighed by the weaker coal prices, as we all know that existed during 2020. The metals business generated $7.3 billion, and the energy $1 billion, which is 73% lower, and as I said, mainly due to the lower coal prices. The cost margin performance was strong, and as you'll see, we've decreased our cost of production across the range of our assets, and our copper assets today produce copper at 94 cents during 2020, sorry, which is 15 cents lower than the year before. Zinc minus $0.07 post gold and silver credits, which is $0.35 lower than the year before, and nickel $0.376, which is $0.22 lower than the year before, and coal we're producing at $45 a ton during 2020, and even with those low coal prices, still generating a margin of $11. As expected, the marketing performance was extremely strong during last year, and we generated $3.3 billion of EBIT, which is up $1 billion of the previous year, 41% up, and that's been a strong performance from our major commodity trading units. Energy generated $1.8 billion of EBIT, which is $437 million higher than the year before, and metals $1.7 billion higher which is $578 million higher than the year before, and that was supported by market conditions and the difference in 2019 where we had the challenges on the cobalt, which we spoke about previously. The Agricultural Division performed well in Viterra, where we equity accounted for 49% ownership, which we have in Viterra. Equity accounted $211 million there. $58 million the year before, so that is a good, strong performance from our agricultural business. The company has an extremely strong balance sheet now. The net debt has been reduced to $15.8 billion, and that is successfully repositioned within the $10 billion to $16 billion target range, which we set for the company, and we're targeting to get down towards the middle of that range and hopefully lower by the end of 2021. We have available committed liquidity of $10.3 billion, and we have the bonds maturing at maximum $3 billion every year. As I said earlier, the spot illustrative cash flow at today's spot prices would be right about $17 billion, close to $8 billion free cash, so the company's looking extremely strong going into this year, and as I said, hopefully by the end of the year, we should generate that type of cash. Turning towards the sustainable performance of the company, unfortunately, we had eight fatalities during the year. Peter and his team are still working extremely strong on that, noting that we do employ 145,000 employees and contractors through our business, but we're definitely aiming to be fatality-free throughout our business. But you'll see the total recorded injury frequency rate is decreasing, lost arm injury rate, Frequency rates is also decreasing, so this is an area where Pete and his team are focusing on to ensure we become fatality-free in this company. If you look at I-scope 1 and 2 CO2 emissions, we talk about 24.3 million tons, and if you look at I-scope 3 CO2 emissions, 264 million tons, but we'll talk about that later, what Glencoe is doing in this area to ensure we are reducing both I-scope 1, 2, and 3 emissions. So with that, I hand over to Steve to talk about the financial performance for the year.

Thank you, Ivan. So we commence on page eight in terms of financial scorecard. We'll get to most of these main headline numbers later on in the presentation as well. Don't intend to dwell any, but just in terms of... Just from a statutory perspective, if you're trying to sort of tie it up, we obviously took some impairments in H1. It was taken primarily there. There was a strong profit performance in H2 given the headline numbers, but net income, pretty significant items was up year-on-year by 2%. All the other debt and cash flow metrics we'll look at in the coming slides. If we go to page 9, just looking at the industrial part of the business that Ivan mentioned, 13% decline from $9 billion to $7.8 billion, so during the year very much a tale of two halves in terms of industrial business with significant tailwinds for this business going forward into 2021 as well. Metals and minerals side was actually up by 31%. Particularly there was a pleasing turnaround at the African copper business, essentially Katanga with a successful ramp up, higher metal prices, also an H2 contributing to the two and a half times performance half on half, H1VH2, and very healthy mining margins in that business at 36%. The energy business was the drag on earnings industrial side during 2020, reflecting both oil and coal prices to a lesser extent the oil prices. We did respond to market dynamics by reducing supply out of all three of our jurisdictions in Australia, Colombia as well as South Africa. seeking to rebalance markets. We did see some recovery in prices, as reflected in the spot cash flow analysis, which I'll go through later on. It wasn't quick enough to materially change 2020's trajectory, so we finished the year at $1 billion, but already annualising now just the coal business itself at $85, Newcastle or so, is now slightly above $2.5 billion as well. I think the table on the bottom right is quite telling, showing the overall $7.8 billion industrial EBITDA for the year has made up $2.6 billion in H1 and $5.2 billion. So you can see that recovery in H2 on prices and volume, some of it COVID-related, particularly in the metal side. And as we move forward in 2021, we're now annualising $13 billion just on the industrial side with the end of January prices. So that's already comfortably ahead of the run rate in H2, which itself is a strong recovery period on period. If we look at page 10, just showing the waterfall and the industrial bridge from 8.9 to 7.8, the pricing variance was the main factor but had been narrowing progressively during the year. If you look back to the H1 presentation just on price variance, we were 2.1 billion period on period. So now it's down to 780, so actually a positive period on period variance during H2. Within that pricing variance, energy was down 1.6. Of that, coal 1.4 and oil was 0.2 of that. Metals was actually a positive 0.9 billion within the price. And you can see some of the percentage, average percentages. The pressure space, where we have exposure mostly as byproducts, but we also have the primary gold produced in Kazakhstan. You've seen prices up about 30% on the pressure side. The PGM side, we also have byproduct exposure in Afghanistan. nickel and the alloys business as well. And you also have the pricing. We had a better second half, although the average was broadly similar in many of the base metals. The fact we had higher volumes in H2, we were more exposed to higher prices and you had some positive provisional price movements, particularly in copper, so strong pricing performance within H2. The volume was – all these variances had narrowed during During the year, both volume and cost was higher at the first half, particularly both volume and cost impacts was felt in the coal business, reflecting both voluntary and involuntary adjustments to market conditions and COVID-related suspensions within coal and the averaging effect on the cost efficiencies that that has as well. Within both those categories, the metal side of the business was actually positive, offsetting the weaker performance from particularly the coal business. There was a bit of FX relief primarily on the South African Rand period on period. It was $165 million of that $2.43. But that's very much rear view going into 2021. All those bars at least from a net perspective is expected to turn materially green on a price and volume perspective as we go forward. If we look at from page 11 some of the individual scorecards for the various businesses as well starting with copper on page 11. Copper Industrial, 4.5 billion of EBITDA in 2020, representing 39% of group EBITDA. So starting to sort of leap in terms of overall mix given current macros and the scale and strength of that particular business. Pleasingly, it's cost structure. Back in August, I think we guided to 106 all in cost on the copper business. They came in at 94 as a function of both efficiencies, production, scale with also help from byproduct pricing in silver, gold, also zinc. There's some byproduct comes through the Antamina operation within these results and cobalt started showing some improvements towards the end of the year, particularly affecting Katanga. That in particular has been the major increase in 2021. I think cobalt's up close to 50% already go to date and we'll see that in some of the pricing benefits as well. So good performance on the copper side, particularly the turnaround in the African copper business at a $1 billion turnaround 19 to 20 from a 0.3 negative in fact in 2019 to 0.7 with significant additional improvement expected in 2021. Later on we'll look at the 2021 or illustrative spot scenario. We haven't changed any production guidance for 21 and beyond from where we were at 4th of December when we gave the update. What we have rolled forward or reflected in each of the businesses is a roll forward of the cash cost within each business reflecting macro development from 4th of December out to the end of January. So that would reflect byproduct pricing, FX and fuel prices where you've seen obviously energy prices generally through crude. So we were showing 87 cents a pound in copper for 21 guidance back in February, back in December and that's down to 80 cents a pound at the end of January with cobalt improvements immense since then that would have even moved down from then. So 6.7 billion we'll show later on up to 42% of group EBITDA as well. Page 12, if we look at zinc side of the business, that delivered a little over 2 billion. Avatar 2020 representing 18%. We also saw big cost improvements over the year on a post-buy product basis. Through middle of last year, we were sort of 5 cents positive and came in at minus 7 cents a pound. And again, that was a strong production performance in H2 and the increase in the buy product credit that gets allocated across that business. So for this business, gold and silver in particular, also significant lead. producer which comes in and quite a sizeable negative H2 cost performance for four year 2021. We're looking at negative 11 cents a pound no change since December. We've seen increased tonnage this year. We spoke about that also back in December. The main contributor being the commissioning expansion of the JIRM complex in Kazink as we move forward as well. Just looking at nickel, came in at 600 million EBITDA, page 13, 5% of EBITDA. The key focus for this business is getting the ramp up of Colly Amber over the next few years, both to drive scale around exposure to the nickel pricing, which is relatively strong at the moment, and to also manage average costs as we go through the next period and deliver some expansion within this business. I think we've got it to 117,000 tonnes of production this year, no change since the 4th of December. That's seeing some year-on-year improvements which we hope and expect out of Conneamber as we move forward as well. On a spot basis, that business is doing a little over a billion dollars, don't ever die. As I said earlier on, this does have some of the exposure to the high PGM prices, particularly out of Canada, as well as cobalt prices out of Australia and Canada as well. Looking at Colwyn, page 14, this was the lag on earnings contributions in 2014 but we're starting to see a recovery in performance in this business as well. EBITDA at $1.2 billion down to just 10% of group EBITDA. Costs and the likes came in as we would have expected. You can see through the table at the top, the bottom of the top table just showing a Newcastle average pricing. And you can see, if you like, that's where the damage was done through the period. It's 1919. Average 2019 was $78, down to a little over $60. And we're running about $85 at the moment, generating a 2021 illustrative of $2.5 billion as well. We have seen some tick up in cost in this business. We were going to about $47. In December, we're now a little over $50. And that's essentially the currency effect of producing in Australia, but producing in RAN and the diesel intensity of this business as well with crude above $60 at the moment as well. You don't, of course, get any by-product relief within this business as well. On an illustrative pro forma spot basis, coal moves up to about 15%. Thermal of that would be about 12%. We do have a MED business, which would be about $500 of that $2.5 billion as well. Moving to page 15 and the marketing performance, this cushioned the overall performance of 2020 to deliver the stable year on year EBIT performance of the 11.6. We saw an extra billion dollars on marketing up 2.4 to 3.3, up 40% and that's across the board very healthy and strong performance as metals and minerals up 578. somewhat flattered by the challenging cobalt market conditions which we described and experienced in 2019, but net-net a very solid and consistent performance across all the metals and minerals units. And then energy was 437 benefiting from the, as we said, exceptional price, lumens, dislocations and carry trade and volatility within that particular business as well, particularly through H1, although H2 was also a very solid performance. And pleasingly, Viterra, which is the former Glencoe Agri, in which we own 49%, that had a very strong performance and equity pickup for us of a little over $200 million. That's obviously the 49%. Grossing it all up to sort of 100%, you've got a business that's sort of around $1 billion worth of EBITDA. In terms of guidance, 2.2, 3.2, sticking to that range, and we've plotted some of the data points from 2021. going back all the way to 2008, you can see quite consistent sort of around that range. Occasionally it dips a bit below, a bit above, but it's a consistent range, validates the range itself, and nice to have a data point now at sort of at the top end of that range as well, which is you've got to go back to 2008 as well in that particular. Top right you can see some of the normally metals would be about sort of twice the energy in sort of the average cycle cruising speed sort of period energy was sort of very much obviously an exceptional performance. If it's repeatable, we'll sort of wait and see, but that was very much part of getting to the $3.3 billion as we did in 2020. We'll just go to the balance sheet generally. What was a very important market for us as we approached the end of the year was to get debt back within the 10-16 range that's been successfully done and repositioned at 15.8 or 15.2x marketing leases which is the number that we primarily focus on for the purpose of that range and particularly the current strong levels of cash flow as Ivan said, $7.2 billion on the $16 billion of free cash flow. It's probably ticked up close to $8 billion that clearly provides the fast track pathway towards our short and medium-term targets around this year, getting back below the mid-range, so below 13, and towards the low end, around the $10 billion in a sustainable fashion, which is where we want to do, and clearly getting a net debt EBITDA close to the one times, which would ensure that through the cycle, a less than two times is never breached, even through this cycle. As you can see, in terms of net debt EBITDA, we peaked at 1.8 in June. Having started the year at 1.5, we're down to 1.37 at the end of December. And on a pro forma sense now, we'd be in fact below 1 already with net debt 15.8 and EBITDA at 16 plus. So we'd be below that level, which is a good position to be in. Net funding was broadly flat in line with a pickup in the RMI of around $2.7 billion. That was reflecting primarily the higher prices from period to period start to the end of the year. Copper up 26%, zinc up 20%, alley up 11%. There is some countercyclical still carrying trades on the books that will work their way through the system in the next sort of year or so, both in the oil side and on the metal side. So you might ask if prices keep going, does your RMI sort of materially go above the $20 pricing, but as we go through a more procyclical period of the economy, tightening markets, backwardation curves, our units that we're actually carrying will also come down. So you'll see that positive impact as we go through on the RMI. On page 17, just on capital structure, as I said, we're now looking to get below the middle of the range this year. That looks fairly straightforward on current metrics and business performance. And bottom right is just an update on where we did finish up for the year and effectively a sort of the actual from where we were at page 17, I think the slide of the H1 presentation where we said here's the pathway from 19 credibly to below 16. What did it need to do in terms of both the cash flow generation at the time which was still strong and also the fact that there'd been a temporary build up in working capital at the time, non-RMI of around 3 billion. finished the year at negative 1.5. So there was still an impact on a full year basis but H2 delivered a part reversal of that 1.5 billion and ultimately ex-marketing leases getting to 15.2 billion with equity free cash flow now above 7 billion as we've started 2021 and we've already locked in I guess a month and a half of that which is which is showing through the start of 2021 as well. Page 18, just on the distribution analysis, the policy as you all know is $1 billion fixed out of the marketing reflecting the more sort of stable, highly cash conversion aspects of that business from EBITDA through to very little capex, lower effective tax rates in that business as well, plus 25% of industrial free cash flows. setting the base distribution, and then on top of that, of course, the company and the board would consider additional top-ups at any time, frankly, during the year, reflecting the state of its balance sheet, reflecting the cash flows, reflecting the outlook and the macro environment generally. We've plotted on the bottom right the marketing, industrial and total equity-free cash flows of the business as well, from which to calculate that $1.6 billion corresponding to, it's a little under 1.6, corresponding back to 12 cents a share. So that's what's being proposed at the moment, but I would highlight that we will certainly, as a minimum, get through the interim results in August, but frankly at any time if we felt it was appropriate to do some top-ups and some capital structure management, that would always be an option for the group as we go through, but a very strong position and balance sheeting check net debt deleveraging targets clearly a priority still as well, as well as paying healthy distributions as we go through. On page 19, just an update on the capex where they've finished up. The outlook is no change from the December update from 4th of December with $5 billion of capex industrial expected for 2021, reflecting a little bit of catch-up in the sustaining area. You can see up to $3.8 billion. There were some project deferrals and COVID-related impacts on some projects and generally a more cash preservation mode early in the year, but that was probably 200 million of that movement. We do have a few fleet replacements that timing-wise just happen to be 21 impactful, but they're also there to derive strong operational efficiencies as well as high internal rates of returns in NPV, particularly at Loma Spice and . That's an American copper business. We have some meaningful fleet replacements that are quite lumpy when they do happen. They don't happen very often and they're looking good in terms of what cost structures we expect in those businesses going forward. Other than that, nothing to speak of. Twenty-one, guidance quickly just to put the We've got some of the production profile from 21 on page 21. Nothing has changed from here to December. Copper just reflects the removal of Mopani tons from 2021 onwards. Zinc goes through a high zinc phase through the particularly Jiram and Antamina zones. Cobalt, that's the progressive ramp up of Katanga. nickels and coniambotans, ferrochrome back from some of the mandatory suspensions in South Africa, and coal a little bit up as well from some of the market-related reductions that were taking proactive measures in 2020, some COVID impact as well, and that's also with Predeco out. Also in the copper-cobalt business, none of these numbers reflect any Matanda restart, which there was a point earlier on that says we're obviously working on firming up the appropriate plans both technically and financially and we'll be able to report back during the course of this year on the plans going forward there. On 2021, you can just see the page 22, you can see the cost structures, copper down to $0.80 and improving that position byproducts, that generates EBITDA of 6.7. Zinc continues to decline as well with higher production and the by-product benefits that come with that business. That amortises up to $2.8 billion. Nickel up to $1 billion as again you have a little bit of expansion and some higher by-product credits, PGMs and cobalt as well. Coal still at first quartile cash margin position but a tick up in costs which would be consistent the Australian dollars or any other currencies that's going and that's running at $2.5 billion plus at the moment. Just to finish up on page 23 there's the illustrative group avatar $16 billion generating $7.2 billion of free cash flow. All the details for this you can find on page 36 later on including the macro assumptions that were used on page 40 at the end of January on that. So strong tailwinds going into 2021 and with that I'll hand back to Ivan.